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Innovative Finance forAdaptation to Climate Change in Developing Countries

- an NGO perspective -

Berlin, 26 May 2008

Jan Kowalzig, Oxfam Germany

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• Principles for funding• New instruments for raising funds• Conclusions & Summary

Now

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Principles for funding

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Principles for funding: above all...

• Drive down the costs by avoiding the worst:Adaptation will become a mission impossiblewithout fast, effective and massive mitigation- Limit global warming to below 2°C- Peak emissions by 2015- Reduce global emissions by 80% by 2050

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• 1/CP.13: adequate, predictable, new & additional• Oxfam: fair & equitable, democratic & effective

• Address entire “funding chain”:

Principles for funding

Raising the money

Contributing to mechanism

Institutional arrangements /administering the funds

Disbursement of funds

predictable additional

fair & equitableadequate

democraticefficient

needs basedeffective

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Principles for funding: “adequate”

• Current funding- LDCF+SCCF: ~$265m- Adaptation Fund: $80m-$300m per year,

$100m to $5bn by 2030- GEF SPA: $50m= less than 1 year US spending on suntan lotion

• Funding requirements- UNFCCC: $28bn-$67bn by 2030- UNDP: $86bn by 2015- Oxfam: at least $50bn

ODA: ~$100bn

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Principles for funding: “new & additional”

• Additional to existing ODA commitments (0.7%):ODA needs (health, education, development etc.) should not be compromised. Funding is not aid but compensation.

• But: mainstreaming adaptation into development co-operation makes split difficult, and new funding from national budgets beyond ODA will be difficult.

= instruments bypassing national budgets needed!

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Principles for funding: “predictable”

• Voluntary pledge-based system has failed

• Binding rules, commitments & quantified targets to realise necessary finance year by year, and get non-Annex 1 country buy-in to post-2012 regime

• De-linked from national politics (and elections), instruments bypassing national budgets

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Principles for funding: “fair & equitable”

• Grants not loansCrashing your car into one’s house and thenoffering a loan to repair it?

• Responsibility and capability:Level of funding based on polluter-pays principle and economic strength to address the crisis

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Principles for funding: “fair & equitable” II

• Greenhouse Development Rights (Ecoequity):- RC-Index for differentiation & graduation- Development threshold: minimum average income- Equity within national borders

• Adaptation Finance Index (Oxfam):- RC-Index for differentiation & graduation- Development threshold: minimum HDI

• Mexican proposal:Multilateral Climate Change Fund

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Principles for funding: “fair & equitable” III

• Taking responsibility & capability seriously:- EU: 27-32% of overall burden- Germany: 6-7% of overall burden

Ecoequity RCI Oxfam AFI% $bn % $bn

EU 27 13.5 - 23.2 32 16.0 - 27.5Germany 6 3.0 - 5.2 7 3.5 - 6.2(based on cost estimate $50-86bn)

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Principles for funding: “democratic”

• Developing country control:- compensation, not aid- not attached to conditionalities- developing country majority

• Avoid proliferation of funds:- New money to go into UNFCCC Adaptation Fund- Emerging funding mechanisms to be folded into AF

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Principles for funding: “effective”

• Needs based and targeted on the poorest:Focused on vulnerable communities & marginalised groups, natural resource management

• Fast and easy access, also for NGOs, not only governments

• Integrated with development & PRS (but: ODA+)• Incentivise further action:

Insurance and risk sharing systems (but: avoid burden transfer to poor people)

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New instruments for raising funds

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New instruments: existing architecture

• Extending 2% levy to JI and IET:$10-50m by 2010, depends on demand

relatively predictable, additional to ODA low turnout, depends on JI/IET post-2012 markets

• Increase CDM levy to 3-5% (Pakistan) predictable, higher volumes, additional to ODA penalises mitigation efforts (but links adaptation with mitigation), seen as adaptation burden transfer, depends on future demand for CDM

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New instruments: auctioning revenues

• Auctioning of a small portion of CP2 AAUs:Several $bn, depending on share (e.g. 5-10%)

predictable, potentially high turnout, polluter-pays motivates to negotiate for lax post-2012 targets, could be counted as ODA (depending on design)

• Auctioning maritime and aviation emissions: $22-40bn annually, depends on carbon price

predictable, high turnout, polluter-pays, less sovereignty concerns, additional to ODA depends on carbon price

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New instruments: auctioning revenues II

• Earmarking of regional/national ET revenues:EU-ETS: €8-20bn by 2013, up to €50bn by 2020

predictable flows, potential high turnout, polluter-pays constitutional excuses, depends on carbon price, can be ruined by high influx e.g. of forest credits, can be counted as ODA (Germany).

US: Liebermann-Warner Climate Security Act- $1bn by 2012, up to $6bn by 2030 for adaptation

and national security

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New instruments: taxing polluters

• International Air Travel Adaptation Levy: $8-15bn annually

predictable & high turnout, polluter-pays can be counted as ODA

• Tuvalu Proposal for shipping and aviation: 0.01/0.001% levy on transport operations, <$100m

predictable flows, polluter-pays probably not very high turnout, can be counted as ODA

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New instruments: taxing polluters II

• Levy on fossil fuels sales, carbon taxGermany: €18-19bn in 2008

predictable flows once established, high potential turnout issues of national sovereignty, can be counted as ODA

• Divert fossil fuel subsidiesEU 2001: €22bn to fossil energy

Mitigation link, high potential turnout issues of national sovereignty, can be

counted as ODA

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New instruments: insurance & risk sharing

• Insurance initiatives:Problem: insurance in low income high risk regions unaffordable, especially for the poor who also suffer most from disasters- Weather index based insurance that pays out on

trigger rather than proof of loss (e.g. India)- Polluter-funded capital reserves can reduce costs for

insurance holders- Directly subsidise premiums, or “in-kind” premiums

e.g. adaptation measures (Germanwatch)

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New instruments: insurance & risk sharing

• Insurance initiatives, ctd: - Reinsurance cover for rare but extreme events

through Annex 1 countries- But: premiums = burden transfer to poor people,

will have to be recycled back to local society

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Conclusions & SummaryConclusions & Summary

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Conclusions & Summary

• No special preference for any particular instrument• Probably several instruments needed• Tendency towards pollution-oriented instruments that link

adaptation with mitigation

• Entire “funding chain” needs to be addressed:

Raising the money

Contributing to mechanism

Institutional arrangements /administering the funds

Disbursement of funds

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Conclusions & Summary II

• International Negotiations, next steps- Decide on level of finance required- Define “new & additional”- Identify possible instruments, including incentives,

and addressing entire “funding chain”

Raising the money

Contributing to mechanism

Institutional arrangements /administering the funds

Disbursement of funds

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Conclusions & Summary III

• Criteria:- adequate: 50-86bn annually, grants not loans- predictable: binding commitments & reliable flows- additional: beyond existing ODA commitments- fair: responsibility/capability, EU share: 27-32% - democratic: developing country majority,

channelled through Adaptation Fund- effective: easy access, focused on vulnerable

communities & marginalised groups, naturalresource management, incentivise further action,integrated with development (but: ODA+)

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Thank you.